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OVERSTOCK.COM, INC (OSTK)
10-K
Annual report pursuant to section 13 and 15(d)
Filed on 02/23/2009
Filed Period 12/31/2008

Table of contents

  • Page 1
    OVERSTOCK.COM, INC (OSTK) 10-K Annual report pursuant to section 13 and 15(d) Filed on 02/23/2009 Filed Period 12/31/2008

  • Page 2
    ... or organization) 87-0634302 (I.R.S. Employer Identification Number) 6350 South 3000 East Salt Lake City, Utah 84121 (Address of principal executive offices including zip code) (801) 947-3100 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12...

  • Page 3
    ... of the registrant as of the last business day of the registrant's most recently completed second quarter (June 30, 2008), was approximately $245.5 million based upon the last sales price reported by NASDAQ. For purposes of this disclosure, shares of Common Stock held by persons who hold more than...

  • Page 4
    ... About Market Risk Financial Statements and Supplementary Data Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Controls and Procedures Other Information Part III. Directors, Executive Officers and Corporate Governance Executive Compensation Security Ownership...

  • Page 5
    ... the various actions we have taken in connection with that program; the possibility that we will relocate our corporate offices; statements about our community site business and its anticipated functionality; our belief that we can maintain inventory levels at appropriate levels despite the seasonal...

  • Page 6
    ...BMMG"). We also operate as a section on our Website an online auction site-a marketplace for the buying and selling of goods and services-as well as the section on our Website for listing cars and real estate for sale. Our company, based in Salt Lake City, Utah, was founded in 1997, and we launched...

  • Page 7
    ... market for online liquidation is characterized by a limited number of competitors, some of which use an auction model to price their goods. Furthermore, we believe that many of the online companies that do offer overstock or liquidation merchandise are focused on single product lines. Lastly, small...

  • Page 8
    ... section of our Website and not necessarily to the Auctions, Cars, Real Estate, or Community sections of our Website. Direct business Our direct business includes sales made to individual consumers and businesses, which are fulfilled from our warehouses in Salt Lake City, Utah (see Item 2 of Part...

  • Page 9
    ...car listing business is included in the fulfillment partner segment, as it is not significant enough to segregate as a segment. Real Estate listing business We operate an online site for listing real estate for sale as a part of our Website. The real estate listing service allows customers to search...

  • Page 10
    ... Website. Products Online Products Our website is organized into five main sections, namely: Shopping, Auctions, Cars, Real Estate, and Community. The Shopping section is organized into eleven main departments: Furniture Bedding Jewelry Electronics Books, etc. Other At Home Clothing & Shoes Watches...

  • Page 11
    ... returns of direct and fulfillment partner merchandise in the Salt Lake City warehouses. Our warehouses store approximately 5,000 non-BMMG products offered on our Website. We operate the Salt Lake City warehouses with an automated warehouse management system that tracks the receipt of inventory...

  • Page 12
    ..., as new competitors can launch new websites at relatively low cost. We believe that competition in the online liquidation market is based predominantly on price; product quality and selection; shopping convenience; order processing and fulfillment; customer service; and company brand recognition...

  • Page 13
    ...December 31, 2008, we had 1,036 full-time employees, including 379 in customer service and fraud prevention, 119 in order fulfillment, 226 in information technology and Website production, 56 in marketing, 150 in merchandising (including auctions, cars, and real estate), 51 in accounting and finance...

  • Page 14
    ... President and Corporate Secretary Senior Vice President, Marketing Senior Vice President, Finance Senior Vice President, Internal Reporting and Information Senior Vice President, Change Management Senior Vice President, Technology Senior Vice President, Marketing and Customer Care Senior Vice...

  • Page 15
    ...Ms. Abraham held several marketing and management positions at Ameritech Corporation. She was employed at American Express Travel Related Services in New York City from 1988 to 1992, focusing on the launch of new products and loyalty programs. Ms. Abraham holds a Bachelor of Arts Degree in Economics...

  • Page 16
    ... as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission. Our Internet website and the information contained therein or connected thereto are not a part of or incorporated into this Annual Report on Form 10-K. ITEM 1A. RISK...

  • Page 17
    ... fulfilling orders, which may reduce the volume of goods we sell and the attractiveness of our products and services. In addition, we may be unable to adequately staff our fulfillment and customer service centers during these peak periods and delivery and other fulfillment companies and customer...

  • Page 18
    ... consequences include reduced visibility of order status and package tracking; delays in order processing and product delivery; increased cost of delivery, resulting in reduced gross profit percentages; and reduced shipment quality, which may result in damaged products and customer dissatisfaction.

  • Page 19
    16

  • Page 20
    ... example, computer hardware, software and consumer electronics) and because we sometimes make large purchases of particular types of inventory. In addition, we often do not receive warranties on the merchandise we purchase. We accept returns of products sold through our fulfillment partners and we...

  • Page 21
    ..., marketing and customer service personnel could harm our revenues, business, prospects, financial condition and results of operations. We have an evolving business model. Our business model has evolved and continues to do so. In the past we have added additional types of services and product...

  • Page 22
    ... our competitors may be able to secure merchandise from manufacturers on more favorable terms, devote greater resources to marketing and promotional campaigns, adopt more aggressive pricing or inventory availability policies and devote substantially more resources to Website and systems development...

  • Page 23
    ...response times, and degradation in levels of customer service, additional expense, impaired quality and speed of order fulfillment or delays in reporting accurate financial information. If the facility where substantially all of our computer and communications hardware is located fails, our business...

  • Page 24
    ... could damage our reputation, harm our business and diminish the value of our brand name. Our Rocker Partners, L.P. litigation may have an adverse effect on our business and financial condition. In August 2005, we filed an unfair business practice lawsuit against Gradient Analytics, Rocker Partners...

  • Page 25
    ... similar fraud claims or damages for alleged violations of state or federal laws governing security protocols for the safekeeping of customers' personal or credit card information. This liability could also include claims for other misuses of personal information, including unauthorized marketing...

  • Page 26
    ..., online or printed classified advertising publications, or other types of sales list services. To the extent that such current or future laws or regulations prevent or inhibit users from selling items on our auction site, or to the extent these laws discriminate against internet auctions or apply...

  • Page 27
    ... companies' auction sites. We may receive similar complaints. We do not have the ability to require users of our services to fulfill their obligations to make payments or to deliver items. We are aware that other companies periodically receive complaints from buyers about the quality of the items...

  • Page 28
    ... car and real estate listing sites and disputes between users of our car and real estate listing sites may harm our business. We are aware that other companies operating online car and real estate listing services have periodically received complaints from users alleging improprieties in connection...

  • Page 29
    ... and federal levels. These laws and regulations could cover issues such as user privacy, freedom of expression, pricing, fraud, quality of products and services, taxation, advertising, intellectual property rights and information security. Applicability to the Internet of existing laws governing...

  • Page 30
    ... financial performance or publication of research reports by analysts; changes in market valuations of similar companies; announcements by us or our competitors of significant contracts, acquisitions, commercial relationships, joint ventures or capital commitments; general market conditions; actual...

  • Page 31
    ... new lines of products; our ability to attract users to our auctions, car listing and real estate sites; and our inability to replace the loss of significant customers. Our operating results may fluctuate depending on the season, and such fluctuations may affect the market price of our securities...

  • Page 32
    ... lose part or all of their investment. ITEM 1B. UNRESOLVED STAFF COMMENTS None. ITEM 2. PROPERTIES Corporate office space In July 2005, we leased approximately 154,000 rentable square feet in the Old Mill Corporate Center III in Salt Lake City, Utah for a term of ten years. Logistics and warehouse...

  • Page 33
    ...warehouse space during the fourth quarter. ITEM 3. LEGAL PROCEEDINGS The information set forth under Item 15 of Part IV, "Financial Statements"-Note 14-"Commitments and Contingencies," subheading "Legal Proceedings," contained in the "Notes to Consolidated Financial Statements" of this Annual Report...

  • Page 34
    ... Information Our common stock is traded on the NASDAQ Global Market under the symbol "OSTK." Prior to May 30, 2002, there was no public market for our common stock. The following table sets forth, for the periods indicated, the high and low sales prices per share for our common stock as reported...

  • Page 35
    ...Finance, LLC as amended and restated on January 6, 2009, prohibits us from paying dividends without the consent of the lender. Recent Sales of Unregistered Securities None. Issuer Purchases of Equity Securities In January 2008, the Board of Directors approved a repurchase program under which we were...

  • Page 36
    ... Weighted Average Exercise Price 2007 Weighted Average Exercise Price 2008 Weighted Average Exercise Price Shares Shares Shares Outstanding-beginning of year Granted at fair value Exercised Canceled/forfeited Outstanding-end of year Options exercisable at year-end Restricted Stock Units Activity...

  • Page 37
    ... year. During the years ended December 31, 2006, 2007 and 2008, the Company recorded stock based compensation related to restricted stock units of $0, $0 and $896,000. At December 31, 2008, 449,000 restricted stock units were outstanding. No restricted stock units had been vested as of December 31...

  • Page 38
    ..., except per share data) 2008 Consolidated Statement of Operations Data: Revenue Direct revenue Fulfillment partner revenue Total revenue Cost of goods sold Direct Fulfillment partner Total cost of goods sold Gross profit Operating expenses: Sales and marketing Technology General and administrative...

  • Page 39
    ... future operating performance (see Item 15 of Part IV, "Financial Statements"-Note 3-"Restructuring Expense"). (3) As part of the program to reduce our expense structure and sell non-core businesses, we decided during the fourth quarter of 2006 to sell our travel subsidiary ("OTravel"). As a result...

  • Page 40
    ... an online auctions business-a marketplace for the buying and selling of goods and services-as well as online sites for listing cars and real estate for sale. We are based in Salt Lake City, Utah, and were founded in 1997. We launched our first Website through which customers could purchase products...

  • Page 41
    ...Real Estate or Community sections of our Website. Auctions business We operate an online auction service as part of our Website. Our auction tab allows sellers to list items for sale, buyers to bid on items of interest, and users to browse through listed items online. We record only our listing fees...

  • Page 42
    ... of our Website as well as advertisement revenue derived from our cars listing business. The Company has organized its operations into two principal segments based on the primary source of revenue: Direct revenue and Fulfillment partner revenue (see Item 15 of Part IV, "Financial Statements"-Note 23...

  • Page 43
    ...our Website and shipped by third parties directly to consumers and other businesses from warehouses maintained by our fulfillment partners. During September 2004, we added an online auction service to our Website. The Auctions business allows sellers to list items for sale, buyers to bid on items of...

  • Page 44
    ... restructuring expenses. (see Item 15 of Part IV, "Financial Statements"-Note 3-"Restructuring Expense"). Deferred revenue Payment is generally required by credit card at the point of sale. Amounts owed or received prior to delivery of products or services provided are recorded as deferred revenue...

  • Page 45
    ..., including software used to upgrade and enhance our Website and processes supporting our business. As required by Statement of Position 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use, we capitalize costs incurred during the application development...

  • Page 46
    ... provisions of the stock-based awards. For 2007 and 2008 option grants, we elected to use the "simplified method" as discussed in Staff Accounting Bulletin ("SAB") No. 107, Share Based Payment ("SAB No. 107") to develop an estimate of expected term. In December 2007, the SEC issued SAB No. 110...

  • Page 47
    ... the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles. The adoption of SFAS No. 162 did not result in a change to our consolidated financial statements. In May 2008, the FASB issued FASB...

  • Page 48
    ... was to record their benefit only when such amounts became realizable (i.e., an agreement had been reached with the partner and the partner had the wherewithal to pay). We are currently reviewing our policies and procedures surrounding partner supplier cost updates and partner billing processes to...

  • Page 49
    ... Senior Notes. To date we have spent $3.0 million under the new debt repurchase program. The balance of our Management's Discussion and Analysis of Financial Condition and Results of Operations provides further information about the matters discussed above and other important matters affecting our...

  • Page 50
    46

  • Page 51
    ... 31, 2007 (as a percentage of total revenue) 2008 Revenue Direct revenue Fulfillment partner revenue Total revenue Cost of goods sold Direct Fulfillment partner Total cost of goods sold Gross profit Operating expenses: Sales and marketing Technology General and administrative Restructuring Total...

  • Page 52
    ... fulfillment partners business; changes in vendor and / or customer pricing, including competitive pricing and inventory management decisions within the direct business; warehouse management costs; customer service costs; and our discounted shipping offers. Discounted shipping offers reduce shipping...

  • Page 53
    ... changes in the number of units received and fulfilled, the extent to which we utilize third party fulfillment services and warehouses, and our ability to effectively manage customer service costs and credit card fees. Operating expenses Sales and marketing. Sales and marketing expenses totaled $55...

  • Page 54
    ...our corporate headquarters we expect to incurr future restructuring expenses. (see Item 15 of Part IV, "Financial Statements"-Note 3-"Restructuring Expense"). During fiscal year 2006, we recorded $5.7 million of restructuring charges, of which $4.6 million related to costs to terminate a co-location...

  • Page 55
    Table of Contents $3.9 million which was recorded as of December 31, 2008 (see Item 15 of Part IV, "Financial Statements"-Note 4-"Acquisition and Subsequent Discontinued Operations"). Income taxes For the year ended December 31, 2007 and 2008, we incurred net operating losses, and consequently paid ...

  • Page 56
    ..., credit card fees and customer service costs-see further discussion in the following section entitled "Fulfillment Costs") to 6.1% of sales in 2007 compared to 7.8% in 2006, a 170 basis point improvement. Fulfillment Partner Gross Profit and Gross Profit Percentage-Our fulfillment partner business...

  • Page 57
    ... changes in the number of units received and fulfilled, the extent to which we utilize third party fulfillment services and warehouses, and our ability to effectively manage customer service costs and credit card fees. Operating expenses Sales and marketing. Sales and marketing expenses totaled $70...

  • Page 58
    ..., we recorded $1.9 million of interest income related to the sale of Foreign Notes (see Item 15 of Part IV, "Financial Statements"-Note 5-"Marketable Securities"). Interest expense is largely related to interest incurred on our convertible notes, capital leases and our credit lines. Interest expense...

  • Page 59
    ..., respectively. Cash received from customers generally corresponds to our net sales as our customers primarily use credit cards to buy from us causing our receivables from these sales transactions to settle quickly. We have payment terms with our fulfillment partners that generally extend beyond the...

  • Page 60
    ..., offset by payments received from purchases, sales and maturities of marketable securities of $36.7 million and a note receivable of $1.5 million related to the sale of the Company's interest in a variable interest entity (see Item 15 of Part IV, "Financial Statements"-Note 25-"Deconsolidation...

  • Page 61
    ... such leases will be renewed by exercising purchase options or replaced by leases of other computer equipment. Corporate office space. In July 2005, we leased approximately 154,000 rentable square feet in the Old Mill Corporate Center III in Salt Lake City, Utah for a term of ten years. The total...

  • Page 62
    ... in Salt Lake City. The Natomas Lease anticipates that we may construct a corporate office facility within the New Warehouse. We constructed a 40,000 square foot customer service facility in the New Warehouse and commenced use of the facility on November 3, 2008. Co-location data center. We...

  • Page 63
    ... us. At December 31, 2008, no amounts were outstanding under the Credit Agreement, and letters of credit totaling $2.2 million were issued on our behalf. Wells Fargo Retail Finance Agreement. On January 6, 2009 we entered into an Amended and Restated Loan and Security Agreement dated January 6, 2009...

  • Page 64
    ... our financial statements and publicly-filed reports in their entirety and not rely on any single financial measure. Our discussion above and below (i) explains why management believes that presentation of Adjusted EBITDA provides useful information to investors regarding our financial condition and...

  • Page 65

  • Page 66
    ...per share data) Sept. 30, 2008 Dec. 31, 2008 Consolidated Statement of Operations Data: Revenue Direct revenue Fulfillment partner revenue Total revenue Cost of goods sold Direct Fulfillment partner Total cost of goods sold Gross profit Operating expenses: Sales and marketing Technology General and...

  • Page 67
    ... the following information and purchase merchandise on our B2C Website: a unique e-mail address; a unique password; and a verified credit card account number. Average customer acquisition cost represents total shopping sales and marketing expense divided by the number of new shopping customers for...

  • Page 68
    ... total revenue) June 30, 2008 Sept. 30, 2008 Dec. 31, 2008 Revenue Direct revenue Fulfillment partner revenue Total revenue Cost of goods sold Direct Fulfillment partner Total cost of goods sold Gross profit Operating expenses: Sales and marketing Technology General and administrative Restructuring...

  • Page 69
    ...is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such information is accumulated and communicated to management, including the CEO (principal executive officer) and Senior Vice President, Finance (principal financial officer), as...

  • Page 70
    ... and credits issued to customers and gift cards issued to customers were completely and accurately recorded in the consolidated financial statements. These control failures impacted accounts receivable and deferred revenue in the consolidated balance sheet as well as revenue and returns expense...

  • Page 71
    Table of Contents ITEM 9B. OTHER INFORMATION None. 65

  • Page 72
    ... PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Except as set forth herein, the information required by this Item is incorporated by reference to the Company's definitive proxy statement for the 2009 annual meeting of stockholders. The Company has adopted a Code of Business...

  • Page 73
    Table of Contents PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES (a) 1. Financial Statements INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statement of ...

  • Page 74
    ... Overstock.com, Inc. and Holladay Building East L.L.C (incorporated by reference to Exhibit 10.10 to our Registration Statement on Form S-1 (File No. 333-83728), which became effective on May 29, 2002). Lease Agreement by and between Overstock.com, Inc. and Marvin L. Oates Trust dated March 15, 2000...

  • Page 75
    ...Mill Building LLC (incorporated by reference to Exhibit 99.3 to our Report on Form 8-K/A filed on December 7, 2004). Old Mill Corporate Center Fourth Amendment to the Lease Agreement (incorporated by reference to Exhibit 99.4 to our Report on Form 8-K/A filed on December 7, 2004). Co-location Center...

  • Page 76
    ... January 3, 2008) Revolving Line of Credit Note dated January 1, 2008 entered into in connection with Amendment to Credit Agreement with Wells Fargo Bank, National Association (incorporated by reference to Exhibit 10.2 to our Report on Form 8-K filed on January 3, 2008) Form of Restricted Stock Unit...

  • Page 77
    ... to our Report on Form 8-K filed on January 26, 2008). Subsidiaries of the Registrant Consent of Independent Registered Public Accounting Firm Powers of Attorney (see signature page) Exhibit 31 Certification of Chief Executive Officer Exhibit 31 Certification of Chief Financial Officer Section 1350...

  • Page 78
    ... the requirements of Section 13 or 15(d) of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on February 23, 2009. OVERSTOCK.COM, INC. By: /s/ PATRICK M. BYRNE Patrick M. Byrne Chief Executive Officer 72

  • Page 79
    ... this Annual Report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and ...Officer (Principal Executive Officer), Chairman of the Board Senior Vice President, Finance (Principal Financial Officer and Principal Accounting Officer...

  • Page 80
    ...of Contents INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statement of Stockholders' Equity (Deficit) and Comprehensive Loss Consolidated Statements of Cash Flows Notes...

  • Page 81
    ... is to express opinions on these financial statements, on the financial statement schedule, and on the Company's internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board...

  • Page 82
    .... Consolidated Balance Sheets (in thousands) December 31, 2007 2008 Assets Current assets: Cash and cash equivalents Marketable securities Cash, cash equivalents and marketable securities Accounts receivable, net Notes receivable (Note 25 and Note 4) Inventories, net Prepaid inventory, net Prepaid...

  • Page 83
    ...) 2006 Year ended December 31, 2007 2008 Revenue Direct revenue Fulfillment partner revenue Total revenue Cost of goods sold Direct(1) Fulfillment partner Total cost of goods sold Gross profit Operating expenses: Sales and marketing(1) Technology(1) General and administrative(1) Restructuring Total...

  • Page 84
    ... services Stock-based compensation related to performance shares Comprehensive loss: Net loss Unrealized gain on marketable securities Cumulative translation adjustment Total comprehensive loss Balance at December 31, 2008 The accompanying notes are an integral part of these consolidated financial...

  • Page 85
    ... internal-use software and website development Realized loss (gain) on marketable securities Loss on settlement of notes receivable (Note 4) Loss on disposition of fixed assets Stock-based compensation to employees and directors Stock-based compensation to consultants for services Stock-based...

  • Page 86
    ...line of credit Paydowns on line of credit Payments to retire convertible senior notes Issuance of common stock in offerings, net of issuance costs Purchase of treasury stock Exercise of stock options Net cash provided by (used in) financing activities of continuing operations Effect of exchange rate...

  • Page 87
    ..., home décor, kitchenware, watches, jewelry, electronics and computers, sporting goods, apparel, and designer accessories, among other products. The Company also sells books, magazines, CDs, DVDs and video games ("BMMG"). As part of its Website, the Company also offers an online auction service...

  • Page 88
    ... convertible pricing model with observable market inputs, which include stock price, dividend payments, borrow costs, equity volatility, interest rates and interest spread. Accounts receivable Accounts receivable consist of trade amounts due from customers and from uncleared credit card transactions...

  • Page 89
    ... software used to upgrade and enhance its Website and processes supporting the Company's business. As required by Statement of Position ("SOP") 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use, the Company capitalizes costs incurred during the application...

  • Page 90
    ... of costs associated with internal-use software and website development was $13.5 million and $11.6 million for those respective periods. Leases The Company accounts for its lease agreements pursuant to Statement of Financial Accounting Standards ("SFAS") No. 13, Accounting for Leases, which...

  • Page 91
    ... the Company's Website and shipped by third parties directly to consumers and other businesses from warehouses maintained by the fulfillment partners. During September 2004, the Company added an online auction service to its Website. The Auctions tab allows sellers to list items for sale, buyers to...

  • Page 92
    ...of allowance for obsolescence or damaged inventory of $2.1 million. Cost of goods sold Cost of goods sold includes product costs, warehousing costs, inbound and outbound shipping costs, handling and fulfillment costs, customer service costs and credit card fees, and is recorded in the same period in...

  • Page 93
    ...terms of the individual agreements, which are generally: 1) a commission for traffic driven to the Website that generates a sale or 2) a referral fee based on the number of clicks on keywords or links to our Website generated during a given period. Advertising expense included in sales and marketing...

  • Page 94
    ... stock in the aggregate. Recent accounting pronouncements In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities ("SFAS No. 159"). Under SFAS No. 159, companies may elect to measure certain financial instruments and certain other items...

  • Page 95
    ... of a logistics services agreement, termination and settlement of a lease related to vacated warehouse facilities in Indiana, and abandonment and marketing for sub-lease office and data center space in the Company's current corporate office facilities. The Company also recorded an additional...

  • Page 96
    ... an on-line travel company whose proprietary technology provided consumer access to a large, fragmented, hard-to-find inventory of lodging, vacation, cruise and transportation bargains. The travel offerings were primarily in popular ski areas in the U.S. and Canada. Effective upon the closing, Ski...

  • Page 97
    ... 31, 2008. No related impairment charges were recorded for the year ended December 31, 2007. As of December 31, 2008, the Company's marketable securities consisted of U.S. agency securities and top tier commercial paper. All marketable securities are classified as available-for-sale securities. The...

  • Page 98
    ... Company purchased $49.9 million of Foreign Corporate Securities ("Foreign Notes") which were scheduled to mature for $50.0 million in cash in November 2006. The Foreign Notes did not have a stated interest rate, but were structured to return the entire principal amount and a conditional coupon if...

  • Page 99
    ... Fixed assets consist of the following (in thousands): 25,643 $ December 31, 2007 2008 Computer hardware and software, including internal-use software and website development Furniture and equipment Leasehold improvements Less: accumulated depreciation and amortization $ 95,652 $ 11,351 - 107...

  • Page 100
    ... (in thousands): December 31, 2007 2008 Inventory received but not invoiced Allowance for returns Accrued payroll and other related costs Accrued marketing expenses Credit card processing fee accrual Accrued freight Accrued professional expenses Accrued taxes Accrued lease termination costs Other...

  • Page 101
    F-21

  • Page 102
    ...making principal and interest payments when due, maintaining the Company's corporate existence and properties, and paying taxes and other claims in a timely manner. Under the repurchase program, the Company retired $9.5 million of the Senior Notes during the third quarter of 2008 for $6.6 million in...

  • Page 103
    ... in Salt Lake City, Utah. The Company constructed a 40,000 square foot customer service facility in the new warehouse and commenced use of the facility on November 3, 2008. Co-location data center In July 2005, the Company entered into a Co-location Center Agreement (the "Co-location Agreement") to...

  • Page 104
    ...have a material adverse effect on its financial statements. On August 11, 2005, along with a shareholder plaintiff, the Company filed a complaint against Gradient Analytics, Inc.; Rocker Partners, LP; Rocker Management, LLC; Rocker Offshore Management Company, Inc. and their respective principals in...

  • Page 105
    ... New York sales taxes on their New York sales, even if the seller has no New York tax "nexus" other than with New York based independent contractors who are internet advertising affiliates. The complaint asks for the court to declare the law unconstitutional and enjoin its application to the Company...

  • Page 106
    ... the Facebook Beacon agreement. On November 14, 2008, the Company filed suit in Ohio state court against the Ohio Tax Commissioner, the Ohio Attorney General and the Governor of Ohio, alleging the Ohio Commercial Activity Tax is unconstitutional. Enacted in 2005, Ohio's Commercial Activity Tax is...

  • Page 107
    ...cash flows, in accordance with the provisions of the Emerging Issues Task Force ("EITF") Issue No. 00-15, Classification in the Statement of Cash Flows of the Income Tax Benefit Received by a Company upon Exercise of a Nonqualified Employee Stock Option. SFAS No. 123(R) supersedes EITF 00-15, amends...

  • Page 108
    ... Plan. The Company settles stock option exercises with newly issued common shares. The following is a summary of stock option activity (in thousands, except per share data): 2006 Weighted Average Exercise Price 2007 Weighted Average Exercise Price 2008 Weighted Average Exercise Price Shares Shares...

  • Page 109
    ... the table above represents the total pretax intrinsic value, based on the Company's average stock price of $16.02 during the year ended December 31, 2008, which would have been received by the option holders had all option holders exercised their options as of that date. There were no in-the-money...

  • Page 110
    ... quarter of 2007, the Company recorded compensation expense based upon the period-end stock price and estimates regarding the ultimate growth in economic value that was expected to occur. These estimates included assumed future growth rates in revenues, gross profit percentages and other factors...

  • Page 111
    ... (an entity owned by the Company's Chairman and Chief Executive Officer) and certain affiliated entities make travel arrangements for Company executives and pay the travel related expenses incurred by its executives on Company business. In 2006, 2007, and 2008 the Company reimbursed Haverford-Valley...

  • Page 112
    ... costs associated with the auctions and cars and real estate listing businesses. The costs for this segment include product costs, warehousing and fulfillment costs, credit card fees and customer service costs. Assets have not been allocated between the segments for management purposes, and as such...

  • Page 113
    ... purpose of buying diamonds and other jewelry, primarily to supply a new category within the jewelry department which allowed customers purchasing diamond rings to select both a specific diamond and ring setting. Under the agreement, the Company was to receive fifty percent (50%) of any profits of...

  • Page 114
    .... Mar. 31, 2007 Consolidated Statement of Operations Data: Revenue Direct revenue Fulfillment partner revenue Total revenue Cost of goods sold Direct Fulfillment partner Total cost of goods sold Gross profit Operating expenses: Sales and marketing Technology General and administrative Restructuring...

  • Page 115
    ... ended December 31, 2007 Deferred tax valuation allowance Allowance for sales returns Reserve for inventory obsolescence Allowance for doubtful accounts Year ended December 31, 2008 Deferred tax valuation allowance Allowance for sales returns Reserve for inventory obsolescence Allowance for doubtful...

  • Page 116
    ... of commercially available airline rates. The following table sets forth information concerning compensation paid or accrued by the Company to each non-employee member of the board of directors (including Mr. Joyce, who serves as a consultant to us) during the year ended December 31, 2008. Fees...

  • Page 117
    ... of the date of grant. Vested shares will be delivered promptly after the restricted stock units vest. Mr. Chidester formerly served as the Company's Senior Vice President, Finance but as of December 31, 2008 serves as the Company's Senior Vice President, Internal Reporting and Information. (2)

  • Page 118
    Exhibit 21 SUBSIDIARIES OF THE REGISTRANT Name Jurisdiction of Formation Trade Names Overstock.com Real Estate LLC Utah Overstock.com Real Estate

  • Page 119
    ...) of Overstock.com, Inc. of our report dated February 23, 2009 relating to the financial statements, financial statement schedule and the effectiveness of internal control over financial reporting, which appears in this Form 10-K. PricewaterhouseCoopers LLP Salt Lake City, Utah February 23, 2009

  • Page 120
    ... design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have...

  • Page 121
    ... design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have...

  • Page 122
    ...the year ended December 31, 2008 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as applicable, and that information contained in such Report fairly presents in all material respects the financial condition and results of operations of Overstock...

  • Page 123
    ... and that information contained in such Report fairly presents in all material respects the financial condition and results of operations of Overstock.com, Inc. Date: February 23, 2009 /s/ Stephen J. Chesnut Name: Stephen J. Chesnut Title: Senior Vice President, Finance (principal financial officer)